A long-term concession arrangement, also called Design, Build,
Own, Operate and Transfer (DBOOT) is a form of public private
partnership in which a private entity – the concessionaire -- is
contracted by a government agency, usually a city or county (or parish)
to design, build and operate a private facility for the exclusive
benefit of the government agency in return for a fixed monthly fee from
that government agency. The fee would compensate the private entity
(concessionaire) for all capital investment, operating costs, interest
on debt and return of capital and earnings on capital and operations.
The government entity is responsible for setting the customer rates or
tax subsidy needed to pay the monthly fee to the concessionaire. The
concessionaire, under contract, must provide services and meet standards
as required in its contract with the government agency.

Each concession contract has clauses specific to that project but
generally follow a similar pattern. An investor – the concession owner
--pays for the design,
engineering and construction of the required treatment facilities and/or
collection system and associated effluent conveyance systems. The
concessionaire (owner/investor) provides the equity and debt for the
capital investment.The
concessionaire would also contract with an operator for the facility.
This investment would include, in addition to tangible physical assets,
permits, rights of way, intellectual property and customers in the
project area by buying private wastewater systems, or take over
municipal customers if available.

The concession/owner would get his investment returned through the
service contract with the municipality. Typically the service contact
amortizes the initial capital investment over the full term of the
concession agreement of 20 to 50 years. The service agreement would also
compensate for the operating cost.

The base-case operating costs are based on initial operating costs
and are adjusted regularly, usually annually, to account for inflation
and change of volume processed. Often Bureau of Labor Statistics indices
are used for costs specific to the geographical region, cost of labor,
chemicals and other consumables, and energy. Energy costs are sometimes
passed-through to the government agency because of its price volatility,
but it may be indexed. The service fee is also adjusted to accommodate
an increase (or decrease) in volume of water and wastewater treated.
Because actual costs may not increase in direct proportion to volume –
economies of scale – the agreement may allow for some annual
negotiating flexibility to account for true costs changes with goal of
keeping the profit percentage to the concessionaire within a fairly
narrow band. Any costs reflecting changes of law are typically passed
through to the government.An
increased standard imposed by environmental regulators would be
documented and may result in an increased monthly service fee if added
capital investment and increased operating costs are required. It is a
true partnership that does require some good will among the parties.
Sometimes open-book accounting is used, at worst outside independent
consultants are used to verify needed improvements and associated costs.
At worst, binding arbitration is used.

The concession owner guarantees performance. The facility must
meet contracted standards. That typically means existing EPA standards
or greater. The concession owner is responsible for fines from
environmental infractions.

The monthly fee from the government agency is set by a
mathematical formula.

The municipal government (public partner) is responsible for
setting and collecting customer fees. The actual billing and collection
practice can be contracted to a private company. As I understand the
contemplated project, the Parish would deliver to the private facility
wastewater. The wastewater becomes the responsibility of the project
owner from that point forward the concession owner may, or may not,
actually own the wastewater. That would depend on contractual
negotiations (ownership of the effluent allows the owner to sell the
treated wastewater for secondary use).

The current private wastewater treatment company could contract
with the concessionaire for operations and/or construction work. The
private treatment company would also receive compensation for assigning
its customers to this project; that compensation could be taken in one
lump sum at financial closing or over a period of time – whatever the
two private parties agree to.

Finally, at the end of the concession period, typically, the
facility would become the property of the government agency (public
partner). The transfer of ownership could be for consideration or
transferred at no charge.

Also, the concession agreement may include a provision for the
government partner to acquire the project at a date earlier than the
prescribed contract termination date.A buyout schedule is agreed upon in the concession negotiation.
That form of exit ramp gives comfort to officials, but typically is very
costly – by design -- and is rarely used.

There are many ways to tailor a concession agreement. For example,
it may to everyone’s benefit to have the asset owned by the Parish and
leased to the “owner” to reduce taxes and be able to accept grants.
But, a Parish-owned asset would prohibit our ability to award DBO
contracts.